The course weblog for PA5113, State and Local Public Finance, at University of Minnesota

Saturday, March 21, 2009

Caught between a rock and a hard place

I recently saw this add for the Simpsons new movie, at the end Homer is swinging back and forth on a wrecking ball. On one side is a rock, on the other is an old bar called, A Hard Place; as the wrecking ball swings back and forth and he smacks into each object you get to hear his familiar, "DOH!". Until finally, the wrecking ball stops swinging and the once solidly attached wrecking ball breaks it's chain and lands on him, a classic Homer situation.

Right now, given the many faceted and hard to understand financial mess, there are many of us who feel like Homer, financially caught between a rock and a hard place. No doubt both state and local governments are feeling the same. Raise taxes, or not? Cut expenditures, or not? If raising taxes, how much and which taxes? If making cuts, to which programs and how much? In all likelihood this dialogue will continue into the foreseeable future as we work to find a way to balance our shaky state and local budgets.

For many of us not understanding how our state budget functions creates a challenge, people can be easily swayed by information and articles that are unable, in a short space, explain all of the details needed to understand why some decisions are made. Myself being a case in point, in the not too far distant past if someone had asked me, "What is a revenue system?", I am not sure I could have given a very coherent answer. Thankfully, The National Conference of State Legislatures has one of the better discussions on this topic that is easily understood even by a novice like myself. In this discussion they highlight nine principles of a high quality revenue system and all of them make sense to me but two ideas seem very relevant at this time, balance and transparency. Two sources of information have influenced how I feel about these topics, one is a recent article by Jay Kiedrowski in the Star Tribune, on February 13, 2009 in which he explains the structural imbalance in our state budget. The second is the actual line item budget proposed by the Governor.

It is in this line item budget and the described structural budget problems that our state faces that a person can see that we may be between a rock and a hard place for some time to come unless basic fiscal practices change. For example the using the remaining funds from some accounts to balance the budget removes flexibility and options in the future, the health care access fund being a prime example.

I just hope that when the wrecking ball stops swinging, the chain does not break, and we are not all standing under it, "DOH!"